| ManEx Solution - 382008 - Production Flexibility |
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ManEx Case Solution
Using safety stock for assemblies and components should allow purchasing and production to meet current and future demand. This is true even if the finished assembly contains a subassembly.
This level of flexibility necessitates contractual agreements for excess material purchased and produced, and preset time frames for when and how to adjust safety stock levels and invoice for undelivered product and materials. As long as both parties understand the requirements, possible changes, and associated costs, this can be an important value-added service strengthening the relationship between the companies.
NE company is able to assemble the product in about 3 days, so the production lead time is not a factor in meeting customer demands. They set their assembly safety stock at 400 pieces and always have enough on hand for standard requirements.
Package minimums offer some protection against order increases, but NE Company must still be prepared for dramatic increases in demand. NE Company uses component safety stock levels to allow for these increases. They set safety stock levels according to maximum demand potential and order minimums*. The customer agreed to this method and is responsible for all components purchased accordingly.
*One method to calculate safety stock levels is with the following formula: MD X QTY X LT/4. MD is the maximum number of assemblies required in a single month (in this case 800). QTY is the number of times per assembly the part is used. LT is the purchasing lead time in weeks.
EXAMPLE: Using this formula, a part placed twice with a twelve week lead time would have a safety stock of 4,800 (800 X 2 X 12/4 = 4,800) or 5,000 if purchased on a reel.
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| Article ID: 3140 |
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